Development secretary introduces new code of conduct in crackdown on spending through external suppliers

Aid agencies and other suppliers must cut the cost of their contracts and will in future be paid by results under rules to be published today by the development secretary, Justine Greening.

With the coalition’s spending on international aid under constant pressure from parts of the Conservative party and lacking majority public support, she has warned for months that she will crack down on spending through external suppliers.

The new code of conduct says external agencies must find “opportunities to reduce costs and waste” during their contracts, publish more information about results achieved, and accept that payment will be “in line with results” – a reform being introduced across public services from probation to drug rehabilitation, and in effect teachers’ pay.

As an example, a supplier contracted to deliver 500 vaccinations who only managed 400 would have their final payment adjusted to reflect that, said a spokesman.

The department will also warn that suppliers not prepared to accept the new terms, or cut costs, will lose the business. “If suppliers can’t deliver better value for money, the department will work with other suppliers who do,” it said in a statement.

Greening, who moved from the transport job to development in the September reshuffle, said: “Labour handed over more than £1bn to suppliers with virtually no effective ministerial oversight. Making sure they sign up to this code of conduct is vital to get the best value for money for the UK taxpayer.” She also wants more work to be done in-house.

A department source said: “In some situations, like fragile states, we have to use technical experts and other suppliers. But in future they have to work harder to show they are value for money – as they would with any other big client.”

The previous Labour government signed a UN pledge to spend 0.7% of national income on international aid, a commitment repeated in the Liberal Democrat and Conservative manifestos at the last general election in 2010.

But the Tory pledge, seen as a key plank of the modernisation agenda championed by David Cameron, has come under increasing pressure from within the party, with several right-wing back benchers speaking out publicly, and a leaked letter from Liam Fox, when he was defence secretary, also criticising the policy. Other high profile critics have included former chancellor Lord Lawson and Tory funder Lord Ashcroft.

Greening has already tried to reassure critics by insisting that all aid contracts worth more than £1m and estates and IT contracts for more than £500,000 must be personally reviewed by her. In November she met the 12 biggest suppliers and demanded that they cut their costs – a move reminiscent of the approach to major government suppliers of all types by the cabinet secretary, Francis Maude.

“On the question of how much is not ‘too much’, the most popular answer is ‘about the same as other wealthy countries’ – currently about 0.46% of [gross national income] .But most – 50% – believe the UK should give ‘less’ or ‘none at all’,” wrote Chatham House’s senior research fellow Rob Bailey.

Last year the Department for International Development awarded contracts worth £215m to their 12 biggest suppliers, including engineers Mott McDonald, business consultants PwC and KPMG, and the IT company Atos. Many other organisations working with the department will be smaller aid agencies.